Life appears to be getting back to normal in China's once troubled trust industry, but supervision will have to be tightened to help trust companies guard against potential risks, the industry's regulator said Monday.

A spokesperson for the China Banking Regulatory Commission said that it will continue to enforce strict measures to protect investors' interests and alert them to future hazards.

Answering criticism that that nation's trust companies are already over-supervised, the spokesperson stressed that the sector remains very much in its infancy in China. This means that regulators need to play a very active role to ensure that it develops in a healthy way.

On the one hand, the sector does not yet have a set of detailed rules and regulations. There are, for example, no law of trustees and no specific rules and regulations governing the responsibilities of trustees.

On the other hand, trustees' abilities to identify, read and manage risks is not strong enough at this stage.

"It would be very irresponsible to allow high risk trust institutions to continue to operate and allow incapable trustees to manage other people's assets," said the spokesperson.

Public confidence in the trust industry also needs to be rebuilt to allow for a full revival of the once troubled industry and regulators have to play a full role in this, he said.

China's reform and opening policy once led to a mushrooming of the country's trust companies.

However, the absence of competent legislation led to numerous problematic cases, such as Guangdong International Trust and Investment Corp, which went belly up in 1998 with losses of close to US$2 billion.

A series of default-payment scandals and irregularities forced the authorities to shake up the industry five times over the previous decade.

The overhauls have trimmed the number of trust companies from 239 from its heyday to the current 59, which have re-registered their companies.

China's first trust law, adopted by the National People's Congress, the country's top legislature, in April 2002, took effect on October 1 of that year.

The law, which covers the rights and duties of trustors and trustees, has led to a series of changes in China's trust business.

But the laws and regulations governing China's trust industry remain insufficient.

The commission spokesperson said 2004 was the best year in terms of authorities' supervision on trust companies.

More than 70 circulars on the trust industry were issued during the year.

A series of methods have been taken to guarantee effective supervision.

But the CBRC spokesperson said risks remained acute even after the industry's shake-up.

The alarm was sounded again in the industry last year when three trust companies were found to have defaults.

Although these were isolated cases, it stressed again that risk concerns must weigh heavily on regulators' minds, even though step-by-step innovation is encouraged to help trust companies seek profits.

The previous sprawling development loaded the industry with heavy burdens, the spokesperson said.

Even though some problems have been solved through the five restructures, more efforts will be needed to recover the huge losses.

(China Daily February 1, 2005)